Prediction market
Updated November 10, 2026
A prediction market is a market where people trade event contracts whose payouts depend on real-world outcomes. Prices aggregate traders’ expectations; money at stake tends to sharpen the signal compared with channels where being wrong costs nothing.
Before a jobs report, a “unemployment above 4.2%” contract might trade at 38¢. That price implies roughly a 38% chance in a liquid $1 binary: traders can buy yes if they think the true odds are higher, or no if they think they’re lower. After the release, the contract settles at $1 or $0 based on the official print.
- Price before the jobs report
- 38¢
- Implied chance in a liquid $1 binary
- ~38%
- Settlement after the official print
- $1 or $0
Prediction markets trade regulated event contracts with defined settlement: priced probabilities on real outcomes.
No single contract “knows” the future. Many specific probabilities together reveal where consensus forms and where traders disagree.
How trading works
Every contract has two sides. In the jobs example, yes trades at 38¢ and no trades near 62¢, and the two sum to roughly $1 because exactly one of them pays. Buying yes is how you take the view that the outcome is more likely than 38%. Buying no is how you take the view that it is less likely. Either way, the most you can lose on the position is what you paid, plus fees.
Prices move when traders change their minds and trade on it. If the market reprices the unemployment contract from 38¢ to 45¢ ahead of the report, the market's estimate has risen about seven points. You don't have to hold to settlement. A position can usually be closed before the outcome is known by buying the other side at the price available. That needs free cash, a buyer at your price, and an open market: your account pays for the contracts the sale buys, and the $1.00 per pair comes back once the two positions net.
Every contract also names a resolution source, the authority whose figure or decision settles it. In the jobs example that is the official BLS release. Reading the source and the threshold before the price tells you exactly what has to happen for a yes contract to pay.
How prediction markets are regulated in the US
In the United States, event contracts are derivatives regulated by the Commodity Futures Trading Commission (CFTC) and trade on CFTC-regulated exchanges. On Lumina, contracts are listed on ForecastEx, a CFTC-registered designated contract market. Lumina Markets Inc. is a CFTC-registered introducing broker and NFA member. Cash in your account is held at Interactive Brokers LLC in accounts subject to CFTC customer funds segregation requirements. Money in an open position is held as collateral at the ForecastEx clearinghouse.
On a regulated exchange, contract terms are standardized and the rules for listing and resolution are published. Are prediction markets legal? covers how the classification question sits.
FAQ
How do prediction markets work?
Traders buy yes or no contracts on a defined question at prices other traders accept. The price reads as the market's probability, and at resolution each contract pays $1 or $0 based on the named source.
Are prediction markets accurate?
It depends on the market. Prices are stronger estimates in liquid, long-running contracts with clear settlement terms. Whether a set of prices was accurate can be measured over many resolved contracts through calibration.
How is a prediction market different from a poll?
A poll records what people say, with nothing riding on it. A prediction market records what traders will pay, it updates as they trade, and being wrong costs money.